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Does lender type matter for the pricing of loans?

Author

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  • Rajan, Aniruddha

    (Bank of England)

  • Willison, Matthew

    (Bank of England)

Abstract

Loan markets often contain lenders with contrasting business models and ownership structures. But does that matter for outcomes in these markets? We examine whether it does using a loan-level data set of mortgage transactions in the United Kingdom. We find the type of lender can matter for pricing behaviour. The levels of interest rates, as well as the sensitivity of rates to funding costs and borrower risk, vary between lender types. Some of these differences are consistent with theories of how agency problems might vary between types of lenders and past empirical studies. But other differences are not consistent. The results suggest further research is needed to understand how, to what extent, and why lender types affect pricing in loan markets.

Suggested Citation

  • Rajan, Aniruddha & Willison, Matthew, 2018. "Does lender type matter for the pricing of loans?," Bank of England working papers 767, Bank of England.
    • Handle: RePEc:boe:boeewp:0767
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    Cited by:

    1. Varadi, Alexandra, 2021. "Identifying the transmission channels of credit supply shocks to household debt: price and non-price effects," Bank of England working papers 927, Bank of England.

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    More about this item

    Keywords

    Banking; lending; business models; mutuals;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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